* Dollar, euro initially drop vs yen after BOJ, then push to
* Aussie dollar takes RBA in stride, rises to fresh
By Lisa Twaronite
TOKYO, Feb 18 The yen dropped against its major
counterparts on Tuesday, after the Bank of Japan held policy
steady as expected and extended a special lending program to
support the economy.
The BOJ maintained its upbeat economic assessment,
suggesting no further easing steps are on the near-term horizon.
The central bank also decided to extend, as expected, three
special loan facilities by one year from their scheduled expiry
at end March.
It raised the maximum amount of the loans to 7 trillion yen
from 3.5 trillion yen, and said financial institutions will be
able to borrow funds at a fixed rate of 0.1 percent over 4 years
instead of 1-3 years at present.
"The announcement should be very helpful for banks' profits,
so it's very natural that the Nikkei should rise, led by banks,
and that's why the dollar/yen soared," said Masashi Murata,
senior currency strategist at Brown Brothers Harriman in Tokyo.
The Nikkei stock average ended up 3.1 percent.
While some market participants apparently viewed the loan
program expansion as a policy signal that the BOJ stood ready to
take a more accommodative stance if necessary, Murata cautioned
that the reaction in the Japanese government bond market
suggested this was not the case.
"Bank shares drove the Nikkei, which drove the yen, but JGBs
did not react much," he said.
The benchmark 10-year JGB yield was flat at
0.600 percent in late afternoon trade.
Some market participants also used the BOJ's announcement as
a convenient excuse to buy back dollars after the greenback's
"People just saw the news about the loans and jumped on the
bandwagon to buy back dollar/yen and cover their shorts after
its drop to session lows after the BOJ held steady," said a
director at a foreign exchange market research firm in Tokyo.
The dollar rose about 0.8 percent to 102.69 yen,
rising as high as 102.74 yen, or nearly a full yen above its
session low of 101.76 yen hit in the immediate wake of the BOJ's
announcement. It pulled further away from a nearly two-week low
of 101.37 yen touched in the previous session.
The euro also added about 0.7 percent on the day to 140.74
yen, rising as high as 140.84 yen from a session low
of 139.50 yen marked after the BOJ's announcement.
Against a basket of currencies, the dollar retook some lost
ground and steadied on the day. The dollar index fell as
low as 79.951 in the previous session, its lowest since late
last year, before ticking up about 0.1 percent to 80.220.
U.S. markets were closed on Monday for the Presidents Day
Market participants will be waiting to see if Governor
Haruhiko Kuroda maintains the stance he took last month -- that
no further easing was needed now with prices rising steadily and
overseas economies recovering -- or if he hints at any more
steps following disappointing growth data this week.
Kuroda will hold an embargoed news conference from 3:30 p.m.
(0630 GMT) with his comments expected to come out any time after
4:15 p.m. (0715 GMT).
Gross domestic product data released on Monday showed the
Japanese economy grew less than expected in the fourth quarter
as consumer spending, business investment and exports
disappointed, a worrying sign of waning momentum ahead of
April's planned increase in the national sales tax.
The Australian dollar was up about 0.1 percent at $0.9061
, after rising to a one-month high of $0.9079.
"Fundamentals aren't really driving it. It's quite clear
that what's going on is liquidation of U.S. dollar longs, as the
market rebalances," said Sue Trinh, senior currency strategist
at RBC Capital Markets in Hong Kong.
In minutes released on Tuesday of the Reserve Bank of
Australia' Feb. 4 meeting, when the RBA surprised some by
dropping its bias to ease further, the central bank noted that a
lower exchange rate would support growth.
The RBA said it saw signs policy stimulus was working to
spur economic activity and as a result it was prudent to keep
interest rates steady for a while.
The euro was steady on the day at $1.3704, not far
from a high of $1.3723 touched on Monday, its highest level
since Jan. 24.
European Central Bank governing council member Ewald Nowotny
said on Monday that a negative deposit rate from the ECB may
fail to stimulate more lending and could have an adverse
The single currency was also helped by data on Friday
showing both Germany and France grew slightly faster than
expected in the fourth quarter.